iPad factory explosion explained

An explosion that rocked a Chinese electronics factory known to produce the iPad 2 for Apple Inc. on Friday left two dead, one fatally wounded, another 15 in hospital and several unanswered questions about the impact halted production would have on Apple’s bottom line.

Initially, Apple said it had reached out to Foxconn Technology Group — the world’s largest maker of computer components and owner of the plant in Chengdu, capital of southwestern China’s Sichuan province — to determine the cause of the fatal incident.

Mike Abramsky, managing director of global technology equity research for RBC Capital Markets, was the first analyst to estimate what the disaster would mean for iPad production, pegging the shortfall at roughly between one and three million units for Apple’s current quarter.

Over the weekend, several new details emerged to provide answers to some of those questions, in addition to raising entirely new ones.

First, the downside for Apple appears to be minimal. Even though the Chengdu facility is one of only two locations building the latest generation of the iconic Apple tablet, Foxconn said Sunday evening it has enough inventory to continue fulfilling Apple’s order requests on time without any notable delay.

However, Foxconn parent Hon Hai Precision Industry Co. said Monday morning it was shutting down all its Chinese electronics polishing plants — including the one located in Shenzhen, where all iPad production was centralized until last October — pending safety checks. Analysts say the longer those checks take to complete, the more likely Apple’s next quarter earnings will take a hit as a result.

Shenzhen reportedly produced 15 million iPads last year. Upon opening the Chendu facility last October, Foxconn’s plan was to set up capacity to produce an additional 40 million iPads annually.

Apple sold 4.69 million iPads during the first three months of 2011 and more than 14 million during the nine months the device was available last year.

Electronics component prices have been rising in the aftermath of the Magnitude 8.9 earthquake and resultant tsunami that struck Japan on March 11, forcing Apple to reportedly pay more in hopes of keeping iPad supplies steady. Friday’s incident places further pressure on iPad production costs, especially if Apple ends up needing to seek out a new contractor.